Hurd Tries To 'Optimize' HP Without Big Changes

CEO cuts workforce by 10%, but not products or business units. Is there more to come?
New Hewlett-Packard president and chief executive Mark Hurd wants to "optimize" the $80 billion company, not transform it. In the first significant overhaul since he the took the reins in March, the only major change implemented was a 10% workforce reduction, leaving any revisions of the company's business units and product lines for another day, if ever.

HP's IT team, as well as the human-resources and finance departments, will be especially hard-hit by the 14,500 job reductions, which, along with other moves such as an elimination of the worker-pension plan, are expected to save nearly $2 billion annually.

But beyond a move to dissolve its sales organization, the standalone Customer Solutions Group, and return the sales force to its three main business units, Hurd left the business core of HP alone. "I have focused my efforts on optimizing HP as it is today," Hurd said in a statement.

CEO Hurd says cost cuts will generate substantial savings. -- Photo by Sipa Press

CEO Hurd says cost cuts will generate substantial savings.

Photo by Sipa Press
It's not that changes aren't occurring at HP. Over the past five months there has been a major shuffling of the executive ranks. Hurd replaced Carly Fiorina in March, former palmOne president and chief executive Todd Bradley was named head of HP's PC business in June, and earlier this month former Dell CIO Randy Mott took a similar position at HP.

"The management team for the past several months has been focused on executing the current HP," Hurd said. "I think [the changes made last week] give us more flexibility as it relates to our future and our ability to reinvest in certain markets. Overall, it gives us a great opportunity in the future to be a significant player."

When the board selected Hurd, it appears it found an executive who agrees with its public position that there's nothing wrong with HP's business strategy and product mix, and that if the company could execute more effectively it could outperform any of its rivals in the technology sector, including IBM and Dell.

Following the 2002 merger of HP and Compaq, the company had become a little like Dell and a little like IBM. But it lacked a clear identity of its own and had an increasingly bewildering public posture that seemed to waver between being a consumer-focused company one day and an enterprise platforms provider the next.

HP still faces major questions, ones that aren't going to be answered by workforce reductions. But Hurd believes cost-cutting is the necessary first step toward revitalizing the company. Creating a leaner workforce was crucial, Hurd said, "because cost structures and revenue growth go hand in hand. It's hard to go to market if you've got too much [internal] cost."

HP will use a three-pronged attack to create a more efficient IT department, he said. The company will eliminate some IT functions that no longer add value, increase automation, and remove any redund- ant functions. "We love IT," Hurd said. "We tend to have a long list of [IT] projects we'd like to work on. This will be taking some work out of the system that we think is not mission-critical to the enterprise."

Still, HP needs to do more. Hurd needs to develop a plan that will enable HP to compete with Dell as a low-cost provider of PCs and servers to consumers and businesses; better promote itself as a full-service provider of systems, services, and software in the mode of IBM; and decide how extensively it wants to compete in the consumer market. If he can do that, people will stop waiting for another shoe to drop.